The People v. Linn , 357 Ill. 220 ( 1934 )

I cannot agree with the conclusion reached in this case that the remainder of the testamentary trusts over which the daughters of the testator have powers of appointment are not taxable at his death. In my judgment there is no inconsistency or conflict between sub-section 4 of section 1 and section 25 of the Inheritance Tax act. Sub-section 4 deals exclusively with the exercise and non-exercise of powers of appointment by donees, in that it specifically provides that "whenever any person, institution, or corporation shall exercise a power of appointment, * * * such appointment, when made, shall be deemed a taxable transfer," etc. The words "person, institution, or corporation" must necessarily refer to the donee of a power, as the donor could not exercise a power which he has conferred upon another. Since no reference is to be found in sub-section 4 to donors of powers it seems clear that sub-section 4 is limited to estates of donees, as there is no restriction, in this section or elsewhere in the act, on the taxation of transfers subject to powers of appointment in estates of donors. On the other hand, section 25 is unlimited in its scope. It is made applicable to all transfers, in trust orotherwise, where the rights, interests or estates of the transferees or beneficiaries are dependent upon conditions or contingencies whereby they may be wholly or in part created, defeated, extended or abridged. A remainder subject to a power of appointment is clearly such a right, interest or estate as is contemplated by the provisions of section 25.

Prior to the passage of the Inheritance Tax act in 1909 the fixing of inheritance taxes on contingent or defeasible interests was held in abeyance until the persons entitled thereto came into the beneficial enjoyment or possession of the same. This was changed by the enactment of section 25, providing for the immediate taxation of all transfers of property upon the death of a decedent, except as provided in paragraph 2 thereof. The two disputed sections are not irreconcilable but may be construed harmoniously. Under section 25 the tax on the remainder subject to such power is effective immediately upon the donor's death. Upon the death of the donee the tax is re-computed under sub-section 4 of section 1 on the basis of the relationship of the appointee to the donee, and a refund may then be had for the difference, if any, between the amount paid in the donor's estate and the amount found due under sub-section 4 of section 1 in the estate of the donee. The State is thus assured of the collection of the tax, and the tax-payer is amply protected by the provision relating to the deposit of securities and by the refund of any over-payment, with interest at the rate of three per cent per annum. If it had been the intention of the legislature to exempt from the operation of section 25 the immediate taxation of transfers subject to powers of appointment it would have been an easy matter for it to have so provided. The omission of such a provision, when considered with the express language of section 25 that when property is transferred or limited "in trust or otherwise," in my opinion discloses a clear legislative intent to include within the operation of section 25 transfers subject to powers of appointment. This position is supported in Talbot v. People, 339 Ill. 333, where this court said: "Prior to the adoption of section 25 this court held that remainders, whether vested or contingent, subject to be defeated in whole or in part by power conferred upon the life tenant, could not be taxed until the power had been exercised or the time had elapsed and the extent of the estate had been determined. (People v. Carpenter, 274 Ill. 103; People v.McCormick, 208 id. 437.) Under section 25 such estates are immediately taxable. — People v. Gerlaugh, 302 Ill. 131."

In People v. Lowenstein, 284 Ill. 126, it was contended that the tax on remainder interests where no trust was involved should be postponed until the persons entitled thereto came into possession. This court overruled that contention and held that the second paragraph of section 25 is limited to estates in which the fixing of the ta had been held in abeyance at the time section 25 was enacted. We there said: "Obviously, the legislature intended by the wording of said section that property depending upon contingencies or conditions, even if there was no trust involved, should be covered by that section. If this is not so there would be no meaning to the word 'otherwise,' in that clause of the section which reads 'when property is limited in trust or otherwise.' "

In the present case it is the taxability in the donor's estate of remainders of a testamentary trust subject to powers of appointment with which we are concerned and not the taxability of the exercise or non-exercise of such powers by the donee. It cannot be disputed that these remainders are interests in property such as are included in the title of the act, and are such interests as fall within the first paragraph of section 1, imposing a tax upon the transfer of any property or any interest therein, in trust or otherwise. They are therefore immediately taxable under section 25. In this view of the case there can be no conflict or inconsistency between section 25 and sub-section 4 of section 1, as each serves a separate and distinct purpose. Under these circumstances there was no need to invoke the rule of statutory construction that a particular portion of an act prevails over a general one, as this rule applies only where two sections or provisions are in conflict. 2 Lewis' Sutherland on Stat. Const. (2d ed.) p. 744; Ex parte Ah Hoy, 23 Ore. 89, 31 P. 220;State v. Shanks, 178 Ind. 330, 99 N.E. 41.

In the majority opinion much stress is laid upon the case ofIn re Howe, 83 N.Y. Supp. 825, (decided in 1903,) and the fact that our Inheritance Tax act of 1909 was patterned after the New York law. In my judgment the Howe case is not controlling. There the State contended that section 230 of the New York law (which corresponds to section 25 of the Illinois act) repealed the provision which is the counterpart of sub-section 4 of section 1 of our act. It appears from the opinion in the Howecase that this point was the decisive element in the conclusion reached. Justice Bartlett, speaking for the court, said: "I do not see how it can well be held that a subsequent provision in the same statute in regard to the taxation of transfers of property where the estates of the transferees are dependent upon contingencies or conditions effects a repeal, by implication, of the specific provision relating to transfer through the instrumentality of the donee of a power." It was not contended in the present case that section 25 rendered sub-section 4 of section 1 void, but, on the contrary, it was urged that both sections have a distinct and separate purpose in the act. Further, it appears that theHowe case was decided on authority of Matter of Seaver, 71 N.Y. Supp. 544, and Matter of Walworth's Estate, 72 id. 984, and that neither of these two cases is in point. Both of these last cited authorities involved the taxability of the exercise of powers of appointment in estates of donees where the creators of the powers died prior to the enactment of the then subdivision 5 of section 220 of the New York law, corresponding to our sub-section 4 of section 1. It thus appears that the taxation of remainders-subject to powers of appointment in estates of donors was not before the court in either of the authorities relied upon in the Howe case.

A further reason why the Howe case is not controlling is that the New York statute in force at the time the opinion was rendered contained certain provisions not found in the Inheritance Tax act of Illinois. Section 222 of the New York act then in force read, in part, as follows: "Taxes upon the transfer of any estate, property or interest therein limited, conditioned, dependent or determinable upon the happening of any contingency or future event by reason of which the fair market value thereof cannot be ascertained at the time of the transfer as herein provided, shall accrue and become due and payable when the persons or corporations beneficially entitled thereto shall come into actual possession or enjoyment thereof." No such provision is to be found in the Illinois act. The quoted section provides for the postponement of succession taxes on the transfers enumerated, and while the opinion in theHowe case makes no mention of section 222 it was nevertheless then a part of the New York act, and it must be assumed that the New York court had knowledge of it and gave due emphasis to its provisions in arriving at its decision that the taxation of remainders subject to powers of appointment should be postponed until such powers are exercised.

In 1905, subsequent to the opinion in the Howe case and before the enactment of our Inheritance Tax law, (1909,) the Court of Appeals of New York, in the case of In re Lansing'sEstate, 162 N.Y. 238, held unconstitutional that portion of subdivision 5 of section 220 of the New York act which provided for the taxation of transfers resulting from the non-exercise of powers of appointment by donees. There is no rule of statutory construction which requires this court to follow a construction placed upon an adopted statute by the courts of the State from which it was adopted, when such adopted statute has in part been declared unconstitutional by the highest court of that State prior to the enactment of the same or similar provision in Illinois. The decision in the Howe case was, in fact, overruled in later New York decisions, (Matter of Cole,235 N.Y. 48, Matter of Parker, 226 id. 260, In re Davidson'sEstate, 236 N.Y. Supp. 437, and Matter of Zborowski,213 N.Y. 109,) but these later decisions are not followed in the majority opinion, on the ground that subsequent amendments to the New York Inheritance Tax law are said to differ essentially from corresponding provisions of the Illinois act in effect when William R. Linn died, in 1930. A comparison of sections 230 and 241 of the New York act with section 25 of the Illinois act as amended in 1929 discloses no material difference between them. The laws of both States then provided for the imposition of the tax at the highest rate which on the happening of any condition or contingency would be possible and for immediate payment of the tax. Although identical language was not used both acts are substantially alike, the dominant purpose being to make certain that the State will collect the tax to which it is entitled, based upon the ultimate distribution of the estate. In the later decisions above cited, the New York courts, notwithstanding the specific provisions of subdivision 6 of section 220, (corresponding to the first part of our sub-section 4 of section 1,) imposing a tax on the exercise of a power of appointment by a donee, held that a remainder subject to a power of appointment is taxable in the first instance in the estate of the donor under sections 230 and 241, on the assumption that the donee might exercise the power in favor of a stranger. Applying this same construction to the provisions of sub-section 4 of section 1 of the Illinois act would limit its application to the taxation of powers of appointment in estates of donees, and, regardless of the retention of the non-exercise provision in sub-section 4, would not restrict or prohibit the immediate taxation of remainders subject to such powers in donors' estates. By such a construction the collection of the tax would not be imperiled or entirely defeated in case the property is removed from Illinois or the donee dies a resident of another State or the property is squandered.

Mr. JUSTICE FARTHING joins in the above dissent.